Bill Rosenblatt: What does ownership mean in the digital age?

When you hit a “buy” button on Amazon, iTunes, or another digital content retail service, do you actually own what you’ve paid money for? If you look at most retailers’ terms of service, the answer is no: you are licensing it on some terms that the retailer sets, which usually don’t amount to ownership. In their important new book, The End of Ownership: Personal Property in the Digital Economy, legal scholars Aaron Perzanowski and Jason Schultz assert that this is a problem, and that the law is the best way to solve it.

Although I disagree with some of the authors’ views, this book is the most thoughtful and incisive collection of ideas about digital personal property that I have ever seen. It raises this fundamental issue: as more and more objects in our daily lives incorporate software, and that software is conveyed to people under contract (license) and not ownership, we don’t really own those objects anymore. Instead, we’re subject to limitations on our use and handling of those objects that are imposed by both law and technology. DRM is the shorthand they use for that technology, even though some of it doesn’t fit the classic definition of DRM.

The authors take it as axiomatic that ownership is an important concept that needs to be preserved in the digital age—at least as a choice we can make when we obtain goods (physical or digital). The book starts out with an explanation of the three types of property that the law recognizes: real property (like real estate), personal property, and intellectual property. We have a longstanding intuitive grasp of these types of property; Perzanowski and Schultz explain how laws embody and facilitate that understanding. They explain differences among these types of properties in terms of the balance of rights between owners and non-owners and, more importantly, what happens when you alienate (sell, give away, lend, or rent) your property.

The legal construct of exhaustion covers this. We’ve spent a lot of time here talking about the applicability of copyright exhaustion—implemented in U.S. law as the first sale doctrine (Section 109 of copyright law)—to digital content in terms of resale and library lending.

Several court cases have considered slices of this issue. Vernor v Autodesk dealt with high-priced software; the court ruled that if the software license agreement contained terms that limit buyers’ rights beyond the normal rights that a buyer of a copyrighted work gets in a sale, those limits are enforceable. (I called this “verbal DRM” and said that it was worse than technological DRM, because at least the latter makes it perfectly clear what you can and can’t do with the work, while the former requires you to read a dense bunch of legalese and possibly hire a lawyer.)

In Capitol Records v ReDigi, the startup ReDigi built a service that enabled users to resell their iTunes music tracks. The court found that in order to provide its service, ReDigi made copies of the files, and it held that those copies were infringing. Yet Apple’s license agreement for iTunes users probably says that users license music files rather than own them; the court didn’t rule on whether that was the case or not. In other words, the court didn’t reach the issue of whether copyright rights trump contractual rights—a question that, according to this book, is still a gray area of the law. (Amazon’s terms are more unambiguously license-oriented than Apple’s, which may be why ReDigi stopped offering its service for files obtained from Amazon and only offered it for iTunes files.)

Perzanowski and Schultz say that it’s important to establish an ownership right in law, which should allow users to use and alienate digital property in any way they choose. That includes interoperability across walled gardens like Amazon’s Kindle e-book or iTunes’s movie ecosystems as well as the right to resell and lend files.

Their proposal for how to solve this problem in law is more thoughtful and nuanced than anything else I’ve seen. Other analyses I’ve seen stop at “yes, there should be resale rights” (because digital goods should be treated just like physical ones) or “no, there shouldn’t” (because digital copies are perfect and publishers’s markets would collapse).

Instead, Perzanowski and Schultz start by imagining a pathological outcome of unfettered exhaustion for digital content: an e-book service that stores a single copy of each e-book and makes it available, like an Uber car or Airbnb room, to arbitrarily many people on an as-available basis. If you want to read an e-book and someone else is reading it, just wait until they “put it down” (e.g., switch to another app on their device) and you can read it. They admit that this would not uphold the system of incentives for content creators that copyright law is supposed to implement, and therefore that it’s not reasonable simply to extend full first sale rights to digital files.

Instead, their proposed solution is to create a law for digital first sale along the lines of current fair use law. The fair use law (Section 107) contains four factors that a court should consider when deciding whether a copy that a defendant in a copyright litigation made is lawful. One of those factors is the effect that the use has on the market for the work being copied.

Similarly, Perzanowski and Schultz’s digital first sale law contains several test factors, one of which is whether the alienation affects the market for the work. They point out that copyright law already sets exhaustion boundaries for music and software by preventing rental, lease, or lending. They say that “[i]f that creates too much uncertainty, either Congress or the courts could identify categories of use that are beyond the scope of digital exhaustion.”

Really? Perzanowski and Schultz are copyleft scholar/activists (Schultz was previously with the Electronic Frontier Foundation). So they should know these words: “[F]air use in America simply means the right to hire a lawyer to defend your right to create. And as lawyers love to forget, our system for defending rights such as fair use is astonishingly bad … It costs too much, it delivers too slowly, and what it delivers often has little connection to the justice underlying the claim. The legal system may be tolerable for the very rich. For everyone else, it is an embarrassment to a tradition that prides itself on the rule of law.” I’d add to this by noting that ambiguity over fair use chills innovation by, among other things, scaring investors off from any business plan that hinges on it.

That, in a nutshell, is what’s wrong with their conceptually admirable but totally impractical idea for digital first sale.

It’s taken decades for courts to establish principles of how fair use applies in the digital world—and the task is never complete, not least because it’s a moving target as technology evolves. And Congress has done nothing about it at all. Getting courts—through many years of expensive litigations and appeals—to arrive at a list of principles akin to the fair use factors is just not a practical idea.

Here’s a variation on the analogy I made in testimony before the National Academies. In some parallel universe, you’re driving a car, and you wonder how fast you should be going. In high school driver’s ed, you were told that there are “speed limit factors” codified in the law, including the purpose and character of your trip, the nature of the road and your vehicle, amount and substantiality of other vehicles on the road at the time, and the weather. So you get a traffic lawyer on the phone (using hands free dialing), an expert who knows the landmark appeals court opinions since the DMCA (Drivers Moving in Cars Act) that gave us the “hospital emergency,” “freezing rain,” and “annoying slow tractor-trailer” precedents as conventions that drivers can rely on to lower their legal risk. You pay the lawyer $1000 per hour, and she delivers an opinion that you may get a speeding ticket (with a maximum fine of $150,000). You slow down, and you’re late for dinner.

In this universe, you just read a speed limit sign—another type of government-created construct—and use a bit of judgment.

Perzanowski and Schultz rightly complain about the disproportionate information costs that consumers incur in having to read through thick legalese in EULAs. How do they suggest that this situation will improve under a digital first-sale doctrine based on fair use-like principles?

Which brings us to the much more practical idea that Perzanowski and Schultz have for solving the digital ownership problem: a system of simple symbols that tell non-techie, non-lawyer users what they can do with their content. This would force such distinctions out in the open, empower consumers to make more informed choices, and induce more competition among service providers. The Federal Trade Commission investigated this idea regarding DRM restrictions back in 2009, though unfortunately did not follow through with it.

As both the PTO White Paper and The End of Ownership point out, the Copyright Office examined this issue back in 2001 and considered a hypothetical “forward and delete” mechanism—essentially a form of DRM—to implement digital first sale. The Copyright Office stated that such a mechanism was impractical to enshrine into law because it was too easy to circumvent, a conclusion that the PTO said still held true in 2016.

ReDigi implemented a forward-and-delete scheme; it was not unhackable, but the court shut it down because it ran afoul of a basic aspect of law that looks at copies instead of usage. Almost as an afterthought, Perzanowski and Schultz express the idea that it would be so much easier in the digital age to codify relevant principles in law if the law focused on uses, not copies. That’s also conceptually admirable, though questions of the overall practicability of such a legal framework lie well above my pay grade.

Perzanowski and Schultz can’t bring themselves to like the idea of a forward-and-delete scheme for implementing digital resale that a court might find acceptable, such as the “2.0” version of ReDigi’s system that it deployed after the District Court injunction. Once again, as much as these authors hate DRM, it imposes limits on usage that are “helpful” in that they are unambiguous and do not require lawyers to interpret and fight in court. If consumers understand the limitations of the products and services they pay for, they can—up to a point, at least—vote with their wallets. It follows that anything that helps them understand this—like the authors’ proposed set of symbols—is a good thing.

There’s a presumption that underlies both The End of Ownership and (through its absence) the PTO White Paper: that ownership of digital content is important to consumers. Perzanowski and Schultz present research suggesting that people expect ownership rights, even though they may not get them. That may well be true, but that’s not the same thing as suggesting that people see value in ownership rights for digital content. I’d argue that they don’t—at least not as much as Perzanowski and Schultz presume they do.

The state of the music market makes a strong case that people care much less about ownership of digital files than they do of physical objects. Although Apple and Amazon’s Terms of Service forbid resale or other alienation of music files, they sell them without DRM. DRM hasn’t been used on digital music downloads since 2009. So, no technology restricts consumers from distributing copies of their iTunes or Amazon (or Bandcamp or HDTracks) music files; users have “ownership capabilities” on those files if not ownership rights.

Back in 2011, on-demand music streaming went mainstream in the United States, as Spotify launched, YouTube completed licensing deals with the major record labels, and Facebook launched a scheme for marketing several streaming music services through its Social Graph, giving them great exposure. Shortly afterwards, music download sales leveled off and started to drop sharply. By now, on-demand streaming will have overtaken downloads in revenue to the music industry. Meanwhile in 2011, sales of vinyl continued their revival from oblivion and surpassed the $100 million mark (plus quite a bit more in used record sales).

In other words, many consumers discovered that for digital music, they preferred a model that expressly denies ownership but offers huge selection to one that is “ownership capable”; while a likely overlapping set of people (re)discovered the joy of physical, ownable music objects with cover art and liner notes.

The weakness of these assumptions also creeps into Perzanowski and Schultz’s discussion of blockchain technology at the end of the book. They state that it’s possible to emulate ownership of digital objects by establishing records of purchases and ownership on a blockchain. They say, for example, that if one person wants to buy a digital object from another, she can check to make sure that the seller is the rightful owner of the file before she buys it by looking at the file’s entry on a blockchain.

Yet purely digital goods are not the only focus of The End of Ownership. The book raises all sorts of issues about software embedded in a bigger and bigger variety of physical objects these days in the Internet of Things (IoT). It raises concerns over license agreements as well as technology that could lead to products becoming non-functional, users being unable to use or manipulate them in certain ways, and so on. Cases such as a car in our parallel universe throttling its speed and refusing to recognize the “hospital emergency” exemption are indeed troubling. But there is one factor that the authors don’t consider: security.

Having just finished a project in the IoT security field, I’m truly worried about the security of connected devices that have the potential to injure or kill people on a massive scale — such as cars (or medical devices, another major example that Perzanowski and Schultz discuss in the book). The makers of these devices need all the leverage they can get against hackers.

While some of that leverage will come from various types of security technology, some of it will also come from legal terms that device makers can assert against hackers where possible. That’s one reason to insist on both legal and technological restrictions on certain types of usage, though perhaps the restrictions ought to be defined more narrowly than they are now. Perzanowski and Schultz imply that security of IoT devices hinges on users’ ability to access and tinker with them; that’s a really dangerous assumption.

There’s a lot more to this book than I’m covering here — including lengthy and equally nuanced discussions of Section 1201, the Copyright Act provision that makes it a violation to hack DRMs. The End of Ownership is the most important book in the digital copyright field this year. It poses lots of important questions about what “property” really means in the digital age and what should be done about it in law. Solutions will come not just from the law itself but also from Larry Lessig’s three other modalities of regulation: technology, the market, and behavioral norms. But that doesn’t mean we shouldn’t have many conversations about what the law can do. This book is a significant advance in that dialog.

Final thought: let’s remember that personal property hasn’t been a thing forever. It’s still alien to certain societies. It’s possible that the Internet age will do for “ownership” what it’s doing for “full-time jobs with benefits” and other social constructs that also didn’t exist at some point in the past.

In commenting, please take extra care to be civil. For years, in the interest of dialogue and mutual enlightenment, I’ve wanted to see more of the pro-DRM side in TeleRead even though I myself am on the anti side (at least in regard to “retail sales”). I am grateful to Bill for obliging. Stay tuned for a detailed Q&A with him.

3 thoughts on “Bill Rosenblatt: What does ownership mean in the digital age?”

Fascinating stuff. You’ve put this title on the top of my “must read” list.
The IoT angle is especially interesting. If I don’t actually own the “thing” then I’m not really legally responsible when it does something not described on the tin. My fridge could become a member of a bot net and my car might become another Christine late at night after I park it. I doubt that Steven King thought about that while writing Christine but I’ll bet he’s pondering an IoT theme right now. If people can hack and control them so can poltergeists. It’s a whole new vector for the otherworld.

@David: Thanks. Yes, I noticed the typo earlier and fixed it and flagged it. Guess you’re following us on RSS or otherwise. Anyway, thanks again, and don’t hesitate to call attention to future glitches.